Double cab pickup trucks drivers to face higher BIK tax

19/02/2024 Update: in today's major U-turn, HMRC declared that it will retract its current guidelines. As a result, Dual Cab Pick-Ups (DCPUs) will maintain their classification as commercial vehicles instead of personal cars, preserving the longstanding tax advantages for businesses and individuals.

The government has taken into account the feedback from the agricultural and automotive sectors regarding the potential effects of altering the tax regulations. It has recognized that the guidance issued following the 2020 court ruling might affect businesses and individuals in ways that do not align with its broader objectives of supporting key industries, including those in motoring and farming.

This decision stems from the government’s commitment to legislate the continued classification of DCPU vehicles as commercial vehicles for taxation.

Nigel Huddleston, the Financial Secretary to the Treasury, stated:

“In the upcoming Finance Bill, we intend to amend the law to prevent tax situations that could unintentionally damage the livelihoods of farmers, van drivers, and the British economy.”

Original post before HMRC's U-turn:

For many years from the tax perspective HMRC have been classified double cab pickup trucks as vans, but this will end this July.

HMRC has issued new guidance on the benefit in kind tax rules that will apply from 1 July this year, which will result in a five-fold increase in benefit in kind (BIK) tax due to this change.

In accordance with this new guidance the tax rates for employers, who use double cab vehicles on their company fleets, will jump as the tax treatment of these vehicles will now be aligned with the company cars tax regime.

This change follows the Coca-Cola Court of Appeal ruling on van classification.

The popularity of these vehicles on company fleets will be affected by this change, as they are often costly and have high emissions, which are the main factors of the benefit in kind tax charge for company cars.

For example, the benefit in kind could go up from around £4,500 per year for a “van”, with fuel included, to more than £25,000 as a “car”. Employers will also have to pay a National Insurance Contribution (NIC) charge on the increased amount at 13.8%.

These vehicles will still be treated as commercial vehicles for VAT purposes, which is also unhelpful, but will be classified as cars for income tax and benefit in kind purposes, adding to the complexity of the UK tax system.

Pickup trucks are commonly used in the agriculture and construction sectors, because they are practical for off-road driving and carrying loads. If the vehicle can carry more than one tonne, it is taxed as a van.

Many people will be unhappy with this change, as it has been the HMRC’s policy since 2002, although single-cab pickups will still be taxed as vans, as long as they meet the weight threshold requirement.

HMRC has always claimed that double cab pickups, such as VW Transporter T5s or Vauxhall Vivaros, are frequently used as passenger cars, which is why they are changing the rules.

The ruling was a result of the case Payne & Ors [2020], brought by Coca-Cola, which challenged HMRC’s view that modified vans should be taxed as cars for VAT purposes. However, the Court of Appeal agreed with HMRC.

In accordance to the latest HMRC guidance from 1 July 2024 most, if not all, double cab pickups will be classified as cars for the purpose of the benefit in kind charge. This is because these vehicles are typically equally good at carrying passengers and goods and do not have a predominant usage.

HMRC allows transitional arrangements for employers who have bought, leased, or ordered a double cab pickup before 1 July 2024. They will be able to apply the old rules until disposal, end of the lease, or 5 April 2028, whichever comes first.

After the effective date, the tax paid on double cabs will depend on vehicle emissions, but with electric pickups becoming more popular, this will create more dilemmas for HMRC.

The Society of Motor Manufacturers and Traders (SMMT) reported that pickup sales were up 22% in the first half of 2023, which means 18,353 more trucks were sold than in the same period of 2022.

HMRC has been notifying the industry stakeholders about these changes since spring 2023, so they had enough time to prepare for the changes.

However, the fact that these vehicles will still be treated as commercial vehicles for VAT purposes, but as cars for income tax and benefit in kind purposes, adds to the complexity of the UK tax system.